Small-Cap Stocks: Traders Bet on a Bounce

Small-cap stocks have taken a beating, but traders are pouring money into options that would pay off from a rally.

Mr. Market is not smiling on small-company stocks. Small-caps are officially in a correction, down nearly 11% from their highs. The iShares Russell 2000 exchange-traded fund (ticker: IWM) recently traded below long-term technical support levels, which is about as bearish as it ever gets.

"Every major metric we track is still near all-time highs or post tech bubble highs and small cap remains extremely expensive vs. large,"...